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QUESTION 4 You are given the following data about expected returns on a security on the LUSE where different states of the economy have the
QUESTION 4
You are given the following data about expected returns on a security on the LUSE where different states of the economy have the same probability of occurrence:
State Return
Strong growth 9.0%
Normal growth 6.5%
Weak growth 2.5%
Recession -4.5%
Required:
Compute and fully interpret the following for the investment:
- The Expected return for the security.
[3 Marks]
- The volatility of the security returns using the semi deviation.
[6 Marks]
- Evaluate the securitys performance assuming a benchmark target rate of 3.5%.
[4 Marks]
- Explain the rationale behind the security performance evaluation method used in (c) above.
[7 Marks]
Total 20 Marks
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